Brooke's Note: RIAs serve two masters, even if in theory it's all one. Sure, the client comes first. But so does the SEC. Get one right and the other one wrong and the advisor, well-meaning or not, is sunk. So any attempt to innovate and streamline juggling these raw eggs of compliance counseling is both welcomed and eyed with trepidation. But RIA in a Box, run by MBAs who started out as its arm's-length financiers, is thoughtfully trying to bring technology to the steamlining and automation of RIA compliance. To do that, you need entrepreneurial managers, entrepreneurial money and a giant reality check on what RIAs really need at every level of AUM. The latter check now exists in the form of Barnaby Grist, a former chief overseer of RIAs and their assets at Schwab. So as you read this article, I'm guessing you'll be nodding your head in agreement with Brian Hamburger. He speaks to where robots go wrong in relating to federal and state overseers. But you'll also be intrigued by how G.J. King, Aquiline and Grist are working to make following the *&%$%& rules more push-button.

Think of it as RIA in a Box becoming RIA in a 'Bot funded by AssetMark-derived private equity winnings -- and then throw in Barnaby Grist as an intriguing plot twist.

Aquiline Capital Partners LLC recently completed the acquisition of RIA in a Box, with dual headquarters in Cleveland and New York and 1,600 advisory firms as clients.

“Aquiline asked me to help them find a firm to invest in and we’ve been talking to a bunch of firms," he says. "This was the first one I got really excited about. You’ve got to have a product that RIAs really need and you’ve got to be able to build and lead a team that can really deliver in that vision.”

In 2011, Gronich sold majority ownership to Rushmore Partners LLC, a private equity firm run by G.J. King and Will Bressman. In a Victor Kiam-style move, Bressman and King, both Stanford MBAs, closed Rushmore Partners to run RIA in a Box.

Aquiline won't disclose the terms of the deal but executives confirmed that it gained majority ownership of the firm. Grist, who was a senior managing director at The Charles Schwab Corp. from 2003 to 2010 and president of Cetera Financial Group from 2010 to 2013, will serve as chairman in consultant's capacity.

Robo to the rescue?

Brian Hamburger: When regulators come knocking on the door or there is an unforeseen client complaint or lawsuit, there is no field on your screen that will satisfy your anxiety and concern.

But assigning a robot to a messy, complicated and manual process like compliance is a little like using a robo-advisor to replace an RIA, says one prominent RIA compliance expert.

“We see what RIA in a Box has done akin with the robo-advisors, says Brian Hamburger, CEO of MarketCounsel Inc. of Englewood, N.J., a more traditional compliance consultancy to large classic RIAs.

King acknowledges his firm is not set up to serve as a consultancy. “Many of the compliance consultants do a great job. That’s driven by one person’s expertise and it is driven by the hours in the day and we believe technology should be the key role in how compliance is handled .... we’re trying to automate as much as possible. At the same time, we’re monitoring things with humans, too.”

Compliance in a box

With RIA in a Box using up fewer human hours in a day, it offers RIAs like the possibility of paying less for a service many regard as a necessary evil.

RIA in a Box has brought in 200 new RIAs in the past year. The firm’s pricing varies based on the size of the RIA. On the low end, it starts at $3,000 a year and for larger firms it can add up to $20,000 to $25,000 a year.

G.J. King: We were two inexperienced guys who approached this and didn’t know a lot about the industry. We thought we were ready for someone who could bring capital resources and technical support.

“When we first got into the business, it was more focused on traditional compliance and consulting,” King says. “A lot has changed in the last seven years. We’re now a technology firm that helps provide a compliance solution using software.”

King says his company still sets up 300 new RIA firms each year. “We’re still the industry leading registration firm."

Sterling bona fides

Part of that growth involves getting out of the box of small, simple, single-location RIAs.

“We’ve got a stronghold with those new firms who are just getting started," says King. We’ve evolved a lot in the last few years. Bringing on a firm with a few hundred advisors and multiple locations. Our platform has evolved and we’ve been able to serve more sophisticated RIAs and we’re excited about the future.”

“Our business day-to-day has us researching that entire market and mapping out service providers and putting efforts where we think there are priorities. RIA in a Box is an important part of the business serving RIAs. It’s a trend we’ve been following for a long time,” Greenberg says.

“We’ve been looking for a partner that understood the RIA space. We were two inexperienced guys who approached this and didn’t know a lot about the industry. We thought we were ready for someone who could bring capital resources and technical support," he says. "It’s the industry experience and knowledge in the space and their ability to bring Barnaby to the equation as well.”

While Grist won’t be jumping back into the RIA arena on a 40-hour week basis, he says he’ll enjoy providing consulting services to RIA in a Box.

“The key is to put some money in now and we’re expecting as we build the platform organically and look for capabilities and services that can really help existing set of clients with RIA in a Box," he says. "We’re hoping to put our capital to work to invest."

Jeff Spears said:

June 1, 2018 — 5:50 PM UTC

Some clients need to talk to a human advisor and a Brian states human regulators will demand that they speak to a human compliance professional. As in the case of advisors versus robos the human element is difficult to automate out of the equation.

Bud Bluestar said:

June 4, 2018 — 2:20 PM UTC

Grist is a friendly guy with basically zero Regulatory experience. As Mr Hamburger points out, the Regulators have a silly belief that a human is accountable for regulatory transgressions. All the algorithms in the universe cannot overcome this variable or account for crazy variables like suitability claims. But it sure sounds like a great marketing pitch to generate new revenue and increase the almighty multiple...that is the name of the game!

EDrap said:

June 7, 2018 — 7:58 PM UTC

An old RIA firm I worked at used Lexington compliance, their parent company is RIA in a Box. You could never get a hold of them over the phone. If you were lucky enough to get a call back, they would not know the answer to the most basic questions. (so much for industry experts) I spent countless hours looking up answers to compliance questions that I had. I now work with Aurora Compliance Solutions out of CT and they are the best. When I call my representative he usually answers the phone. If I have to leave a message, I get a call right back. (with an answer)
There are areas where automation should not go. RIA compliance is one of those "no-go" areas. Compliance technology happens in the other areas of the business through data aggregation. As a Chief Compliance Officer (CCO) you need that human touch. It's not always black and white. I actually told my rep at Aurora that if he ever tried to have me ever use "compliance software", it would be the last conversation we would have. He said "We don't think that it makes sense for compliance". Not that they were working on one or that they were considering one. He actually spoke my language so I asked "why not?" He said "additional programs and software can bring multiple other potential risks." I said "OK" but was thinking "Amen Brother, one last thing I don't have to worry about". LOL

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